OPERATING LEASE COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2024

OPERATING LEASE COMMITMENTS AND CONTINGENCIES

OPERATING LEASE COMMITMENTS AND CONTINGENCIES

16. OPERATING LEASE COMMITMENTS AND CONTINGENCIES

Operating Lease Commitments

Operating leases in which the Corporation is the lessee are recorded as operating lease Right of Use ("ROU") assets and operating lease liabilities, included in other assets and other liabilities, respectively, on the consolidated balance sheets. The Corporation does not currently have any finance leases. Operating lease ROU assets represent the right to use an underlying asset during the lease term and operating lease liabilities represent the obligation to make lease payments arising from the lease.

The Corporation leases certain branch locations, office space and equipment. All leases are classified as operating leases. Operating lease expense, which is comprised of amortization of the ROU assets and the implicit interest accreted on the operating lease liability, is recognized on a straight line basis over the remaining lease term of the operating lease. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet and the related lease expense is recognized on a straight-line basis over the lease term.

Certain leases include options to renew, with renewal terms that can extend the lease term from one to eight years that are reasonably certain of being exercised. The discount rate used in determining the lease liability for each individual lease was the FHLB fixed advance rate which corresponded with the remaining lease term as of January 1, 2019 for leases that existed at adoption of ASU 2017-02 and as of the lease commencement date for leases subsequently entered into after January 1, 2019. At December 31, 2024, discount rates ranged from 1.27% to 4.16% with a weighted-average discount rate of 1.96%. At December 31, 2024, the weighted-average remaining lease term was 4.1 years. At December 31, 2023, the weighted-average discount rate was 1.96% and the weighted-average remaining lease term was 4.6 years.

At December 31, 2024, right-of-use assets of $3,151,000 were included in other assets, and the related lease liabilities totaling the same amount were included in accrued interest and other liabilities, in the consolidated balance sheets. At December 31, 2023, right of use assets and the related liabilities totaled $3,570,000.

In 2024, 2023 and 2022, operating lease expenses are included in the following line item of the consolidated statements of income:

(In Thousands)	2024		2023		2022
Net occupancy and equipment expense	$	666	$	644	$	599
Total	$	666	$	644	$	599

A maturity analysis of the Corporation’s lease liabilities at December 31, 2024 is as follows:

(In Thousands)

Lease Payments Due

2025	$	671
2026		595
2027		518
2028		419
2029		373
Thereafter		774
Total lease payments		3,350
Discount on cash flows		(199)
Total lease liabilities	$	3,151

Litigation Matters

Class Action Litigation

On March 27, 2024, a putative class action lawsuit was filed in the US District Court for the Western District of Texas by investors in a purported Ponzi scheme operated by two individuals, one of whom maintained accounts at C&N Bank. The plaintiffs have sued C&N Bank, along with another bank, and additional law firm and accounting firm defendants. The case is styled Goldovsky, et al. v. Rauld, et al. Plaintiffs have asserted claims against C&N Bank and the other bank for aiding and abetting alleged violations of the Texas Securities Act, and additional claims against the legal and accounting professionals for statutory fraud, common law fraud, negligent misrepresentation, and knowing participation in breach of fiduciary duty.  C&N Bank has filed motions to dismiss the case for wont of personal jurisdiction and failure to state a claim. The Plaintiffs have responded to those motions. Plaintiffs have filed an application for certification of the suit as a class action. The court has stayed the motions to dismiss pending consideration of the class action certification application. Following depositions of the four plaintiffs on issues germane to class action certification, C&N Bank and each of the other defendants have filed briefs in opposition to the plaintiff’s class certification motion. A hearing on the motion for class certification took place on February 18, 2025. A ruling on class certification is pending. Based on the information available to the Corporation, the Corporation does not believe at this time that a loss is probable in this matter, nor can a range of possible losses be determined. Accordingly, no liability has been recorded for this litigation matter in the accompanying consolidated financial statements. The Corporation’s estimate may change from time to time, and actual losses could vary.

In the normal course of business, the Corporation is subject to pending and threatened litigation in which claims for monetary damages are asserted. In management’s opinion, the Corporation’s financial position and results of operations would not be materially affected by the outcome of these legal proceeding.